Mobile Phones Improve Trade in Nigeria’s Women Micro-Entrepreneurs

(Excerpt from UNCTAD’s ‘Information Economy Report 2010 – ICTs, Enterprises and Poverty Alleviation’)

“Aso oke” involves the weaving of cloth on hand-looms in Nigeria. The cloth can be used in the production of fashion accessories such as shoes or bags, and in the production of home furnishings such as throws and cushion covers.

Transactions begin when a buyer approaches either a weaver or much more often an intermediary to place an order. Orders for the fabric are usually by verbal agrement. Ordering transaction is through negotiating the buyer’s design requirements such things as the patterns and colors of the fabric, its consistency and finishing.

This negotiation will involve the weaver being called to meet the intermediary or the buyer. Once the design has been agreed upon, a sample of the ordered fabric is produced and presented to the buyer for approval.

Approval leads to the negotiation of the terms of the transaction, including order quantity, delivery dates, and price. A deposit is then paid by the buyer which serves to both seal the trade agreement and provide initial capital for producing the order. Payment of the deposit marks the beginning of the production stage. Raw materials are purchased either by the intermediary or by the weaver. The fabric is later weave according to the buyer’s specifications.

There are apparent constraints with production and delivery of the raw materials.One constraint is the operational processes tend to be slow requiring physical interaction and may require journeys. Journeys are often slow because of poor quality and lack of transport infrastructure.

There are high financial and time costs of gathering information necessary to prepare cloth and trade. This is another constraints. Journeys are costly in terms of both direct and indirect cost. For most micro-entrepreneurs a day spent travelling is a day on which income generation is foregone.

Micro-entrepreneurs are subject also to trading risks because of information asymmetries. These include opportunism such as overcharging for goods or agreeing to a contract knowing it cannot properly be fulfilled.

Intermediaries play an important role in this value chain. They hold information on buyers, sellers, products and prices. They can reduce the informational costs and increase the communication speed for buyers and sellers. Their broader spread of contacts allows trade to become less localized. They can make trade less risk because of their informational resources and reputation.

But intermediaries can also have a negative impact on micro-entrepreneurs. They are typically in a powerful bargaining position as they have more information than more-producers and customers. As a result, they are often seen to force prices paid to producers down below market values, reducing the income for micro-entrepreneurs.

One of the most effective means to solve this contrainsts is the use of mobile phones. The producers saved time and money in enterprise operations by substituting for journeys related to a wide range of value chain operations. Mobile phones are used in checking identities of purchasers and suppliers. It is used for confirmation of orders, searching for and confirming presence of raw materials. In most cases the mobile phones will confirm credit arrangements and pick-up of raw materials, checking changes to orders or deliveries, communication of minor amendments, checking and confirming presence of completed parts and setting up and confirming presence for physical meetings.

Time saved per call was typically several hours. Money saved was typically understood by comparing call costs with transport costs. There was some consideration of the opportunity costs of travel that could be recouped through phone use.

However, journeys and face-to-face interactions did not disappear entirely. They were still required for physical inspection. The need for inspection arose from a factor specific to design-intensive sectors like “aso oke”. There is a need to physically see particular items.

While there was no measurement of the impact on livelihood assets in this research, there are key findings that are cited.

One commendable effect of using cellphones is easier transaction processes. There is improvement in the reductions in time, costs and risks.

The market structure remained unchanged. The commerce remained localized and intermediated. Indeed, mobiles have consolidated existing intermediaries and also led to the creation of new forms of intermediaries. This could have an impact on the incomes of micro-enterprises.

Some evidence suggests that those with mobiles got more trade while those without tended to become excluded from supply chains.